Valuation of ARIF HABIB LTD

Submitted By Aneeka Shahzad Zubash Jawad Sadaf Noor

5/1/2013

Table of Contents

Introduction01

Valuation..02

Dividends cash flow Approach02

Relative valuation and its fundamentals..

Conclusion..

Recommendation.

Introduction:
Arif Habib Limited (AHL) is engaged in providing brokerage and corporate finance services to a large number of institutional, corporate, high networth individuals and retail clients. It is a listed company with 77.25% ownership by Arif Habib Corporation Limited, the holding company of one of the premier financial services groups in Pakistan. Arif Habib Group commenced brokerage services in 1970. The brokerage services are provided by a team of professional brokers with 13 years of average individual experience and 80 years of collective experience. They remain eager to provide realistic trading recommendations, efficient order execution, significant capacity to execute large orders, competititve pricing, and in-depth research reports to their valued clients. Vision: To be the leading full service securities brokerage and corporate finance company in Pakistan known for its unmatched client service capacity, voluntary adherence to the highest ethical standards and insistence on global best practices at all times. Mission: To provide the fullest range of first-rate, value additive, brokerage, investment advisory and corporate finance services to clients, fair treatment to all stakeholders, superior returns to the shareholders, and to make a meaningful contribution to the development and growth of the capital markets in particular and countrys economy in general.

Valuation Discounted Cash Flow Model s- (Equity Valuation Model) Dividends: DPS: Dividends% x Original price per share =30% x Rs.10

=Rs.3/per share Interpretation: Dividend per share (DPS) is the total dividends paid out over an entire year (including interim dividends but not including special dividends) divided by the number of outstanding ordinary shares issued. Here DPS is RS. 3/per share EPS: Profits- Dividends on preferred stock / weighted average number of common shares =7.92 Interpretation: The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability. Here EPS is 7.92

Payout Ratio: Dividends per share/Earnings per share = 3/7.92 =0.530 Interpretation: The amount of earnings paid out in dividends to shareholders. Investors can use the payout ratio to determine what companies are doing with their earnings. In this case payout ratio is 0.530

Retention Ratio: Net income Dividends/ Net income =656119009-3/656119009 =0.9639 Interpretation: Retention ratio is 0.9639 which is the percent of earnings credited to retained earnings. In other words, the proportion of net income that is not paid out as dividends.

ROE: Net Income/ shareholders equity = 656119009/1356699821 =0.4836 Interpretation: The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. Arif habib Ltd has he ROE of 0.4836 or 48.36%

G: (Growth rate) (Opening price closing price + dividends)/ opening price = 36.23 35.88 + 3)/ 36.24 = 0.0927 or 9.2% Interpretation: For investors, typically represents the compounded annualized rate of growth of a company's revenues, earnings, dividends and even macro concepts - such as the economy as a whole. Here company has a good growth rate of 9.2%

Expected Growth rate: Retention Ratio x ROE = 0.9639 x 0.483 = 0.4656

Terminal Value: EPS x payout ratio/ r g = = Interpretation: The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as interest rates and the current value of the asset, and assuming a stable growth rate. CAPM: (Cost of Equity) Rf + Beta x Market premium = 14% + 0.85 x 6% = 19.10% Here 14% Rf is on 10 years PIB Interpretation: A firm's cost of equity represents the compensation that the market demands in exchange for owning the asset and bearing the risk of ownership. Here CAPM is 19.10%

Value of Equity per Share:

Relative Valuation and Fundamentals

Value of stock: DPS 1/ke g =

Price to Earnings Ratio: PE= payout Ratio (1+ g)/(r-g) = 0.530 (1 + 0.0927)/ 0.12 0.0927) = 4.21 Interpretation: Here 4.21 is a valuation ratio of a company's current share price compared to its per-share earnings.

Price Earning growth Ratio: PEG = Payout Ratio (1+ g)/g (r-g) = 5.34 Interpretation: The price/earnings to growth (PEG) ratio is used to determine a stock's value while taking the company's earnings growth into account, and is considered to provide a more complete picture than the P/E ratio.

Price to Book Value ratio: PBV = ROE (payout Ratio) (1+ g)/ (r g) = 0.4836 (0.530) (1 +0.0927)/ (0.12 0.0927) = 0.32 Interpretation: A ratio used to compare a stock's market value to its book value. Here ratio is 0.30

PS: PS = Net Margin (payout ratio) (1 +g)/(r g) Net margin = Net profit/ Revenues = 656119009/125903884 =5.211 = 5.211 (0.530) (1 + 0.0927)/ (0.12 0.0927) = 21. 93 Interpretation:

Firm Multiplies
Conclusion Reccomendation